Americas: The week ahead in petrochemicals

US markets are expected to be mixed this week, with a bearish outlook for olefins and styrene, while polyethylene prices are expected to remain higher.

OLEFINS

US spot ethylene is expected to continue its downward trend, after falling almost 30%, or 6.5 cents last month to 15.5 cents/lb, according to S&P Global Platts data. "There is plenty of product to go around for everyone," a market source said. Sources attributed the decrease in pricing to length in the domestic ethylene inventory. January US ethylene contracts were heard settling 1.25 cents/lb lower from December contract prices, trade participants said Wednesday. The decline would take US January ethylene contracts to 25.75 cents/lb.

POLYMERS

US spot polymer-grade propylene prices are expected to hover around 29 cents/lb this week. Although a propane dehydrogenation unit was heard restarting last week, sources said the PDH unit would need to be fully restarted before a price effect could be seen. However, the propylene market will likely see increased volatility in the near future due to volatile crude oil prices and the coronavirus outbreak. These could be a bigger factor on propylene prices than length in inventory coming from a PDH restart, a second source said. This comes as the US Energy Information Administration said domestic propylene inventory has fallen for three consecutive weeks, falling 179,000 barrels on the week to 5.469 million barrels in the week ended January 31.

Market participants faced higher export pricing for polyethylene in the second half of last week amid fresh supplier levels for the month of February. Exports were described as hampered by perceived higher pricing with limited options. The Lunar New Year holidays were extended amid the coronavirus outbreak, further complicating US to Asia exports. Pricing continued to be talked firm-to-higher despite a global downturn in energy. In polypropylene, there was talk that a price ceiling had been reached as pricing remained strong. Pricing for both homopolymer and copolymer grades rose $55/mt last week. Supply was talk tightened for the period with some players saying availability depended from producer to producer. The hike was amid four announcements to customers proposing a 3-4 cent increase for March 1.

The Brazilian polyethylene market is expected to see higher prices driven by hikes in in the US market over the week, while the polypropylene market is expected to go the opposite way as Asian prices are seen with lower values. Domestic delivered prices are expected to see no discounts available during the week, reaching the full increase of Real 500/mt for February bookings.

In the West Coast of South America, spot import polyethylene prices are also expected to see higher values during the week, following limited availability of US products and much higher prices, while polypropylene is expected to see mixed prices as Asia decreased its prices in the past days while the US pushed prices up week on week. In Mercosur, spot price was up between $50/mt to $70/mt last week and local players expect a new pricing list only for March bookings. In Argentina, distributors expect to receive a new pricing list after stability in the past few weeks. No increases have been announced since mid-January.

AROMATICS

Demand for benzene from the styrene segment is expected to remain soft as supply-side conditions support prices. Participants said prices could increase with fewer imports to the US scheduled to arrive, but changes in logistics or demand related to the coronavirus outbreak, particularly in Asia, could create the opposite effect. At least three traders based in Asia were heard to be planning to take advantage of an arbitrage opportunity between South Korea and the US. Styrene supply should remain tight as maintenance continues at Americas Styrenics' 952,000 mt/year facility in St. James, Louisiana, with additional outages expected in March at Styrolution's 500,000 mt/year styrene plant in Texas City, Texas. Last week, participants characterized the styrene market as stagnant or flat over Thursday and Friday, with no confirmed bids, trades or offers heard. One producer said he was waiting out the week, hoping spot prices would continue to rise. A trader said cautious sentiment among buyers could mean little activity in the following week, with the now-limited demand from Asia not expected to increase for a few weeks.

US toluene is expected to remain tight this week amid ongoing producer maintenance and this is likely to lend support to pricing. Octane demand is expected to remain soft in the near term with a notable gulf between blend values and current spot pricing. Further out, demand from gasoline blenders is expected to improve ahead of the summer driving season, evidenced by a sharp contango in RBOB futures, sources said. Toluene conversion margins on a contract basis are expected to foster some demand, sources said. Dynamics in the mixed xylene markets were similar, where limited availability lent support to pricing, however demand was heard soft from both the gasoline and chemical segments. Prompt spot paraxylene prices are likely to remain soft amid an ongoing supply glut, sources said.

The North American methanol market could continue to edge lower from multi-month highs seen at the end of January, in line with weaker global demand due to the coronavirus outbreak. Despite downward pressure due to bearish global demand, any decrease in the price of domestic methanol will continue to be limited by tight regional supply, creating a premium over other global regions. The North American MTBE market remains bearish, with sluggish gasoline blending activity heard due to lower demand from Mexico and other parts of Latin America.

US VINYLS

US export polyvinyl chloride prices are expected to hover in the settled February range of $835-$845/mt FAS Houston this week, an 18-month high, though requests for incremental volumes could push prices up further. The settled range is the producer-to-trader price, while the trader-to-customer price is higher to account for freight and other costs. Formosa Plastics USA last week launched a turnaround at its 798,000 mt/year polyvinyl chloride plant and an upstream 753,000 mt/year vinyl chloride monomer facility at the company's Point Comfort, Texas, complex. Westlake Chemical remains hampered on moving VCM to its PVC plants amid logistic issues, and Shintech is expected to have limited export volume availability in March as it did this month, ahead of a March turnaround at its 1.4 million mt/year PVC plant in Freeport, Texas. Further upstream, caustic soda prices remain under pressure, at their lowest level since 2010 amid sharp slowdowns in industrial demand, including alumina as well as pulp and paper. Ethylene dichloride prices could surpass $240/mt FOB as integrated producers keep EDC output internal for downstream PVC production given PVC price strength compared to caustic soda weakness.